We examine the pricing of tail risk in international stock markets. We find that the tail risk of different countries is highly integrated. Introducing a new World Fear index, we find that local and global aggregate market returns are mainly driven by global tail risk rather than local tail risk. World fear is also priced in the crosssection of stock returns. Buying stocks with high sensitivities to World Fear while selling stocks with low sensitivities generates excess returns of up to 2.72% per month.
We examine long memory volatility in the cross-section of stock returns. We show that long memory volatility is widespread in the United States and that the degree of memory can be related to rm characteristics, such as market capitalization, book-to-market ratio, prior performance, and price jumps. Long memory volatility is negatively priced in the cross-section. Buying stocks with shorter memory and selling stocks with longer memory in volatility generates signicant excess returns of 1.71% per annum. Consistent with theory, we nd that the volatility of stocks with longer memory is more predictable than stocks with shorter memory. This makes the latter more uncertain, which is compensated for with higher average returns.
This paper examines the properties of the gold risk premium. We estimate a parsimonious model for the gold risk premium and uncover important time variations in the dynamics of the risk premium. We also estimate the risk premia of the stock and bond markets and investigate their co-movements. The results show that the co-movements of expected gold returns with expected returns of stocks and bonds are positive, while co-movements of realized returns are zero or negative on average. This results holds not only during normal market periods, but also in times of market stress. Furthermore, we nd no signicant co-movement of expected and realized returns of gold with ination.
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